UPC codes and SKUs: mastering inventory management

Many consumers use the terms “SKU” and “UPC” interchangeably, but for small business owners and for employees who manage inventory in the United States, it’s important to know the difference. But what is the difference? Aren’t they both a fancy word for item number or product number? Not exactly.

UPC Code vs. SKU

Stock keeping units (SKUs) are internal product inventory codes unique to a particular company. If you go into a store and look at an individual product then compare that product to the same one at another chain, you’ll see that the SKU on the price tag is different.

Universal Product Codes (UPC), on the other hand, are external product tracking codes that are standardized for use by any company. This makes the UPC a true universal product identification tool like the name implies. It will be the same everywhere. The UPC number is tied to a unique product, but again, it’s the same across all stores and chains.

If you’re ever confused whether you’re looking at a SKU or UPC, the UPC symbol will be the barcode label or bar coding on the back of the product, while the SKU will generally be printed on the store-specific shelf pricing.

SKU and UPC codes are both similar and different, but they have many of the same uses and best practices. Let’s tackle SKU codes first to better understand how these two work in tandem but accomplish different objectives at the same time.

Understanding and using SKU codes

SKU numbers are alphanumeric codes used by companies to track units of products in inventory and products sold. SKU numbers can be assigned to physical products as well as intangible products that are billable, such as units of repair time or warranties. Because of this, SKUs can also be thought of as codes assigned to a company’s billable entities.

Each company assigns its own SKU numbers. SKU numbers are distinct from product model numbers, which are assigned by manufacturers. However, some companies include model number information in their SKUs for identification purposes.

SKUs are frequently used by warehouses, marketplaces, fulfillment centers, catalogs and e-commerce sites. For example, Amazon assigns a special 10-digit code Amazon SKU number to products it sells. These are known as Amazon Standard Identification Numbers (ASINs). ASINs are distinct from manufacturer model numbers and from SKU numbers used by other sellers in Amazon’s supply chain.

SKU best practices

Characters in SKU numbers can represent information such as manufacturer, color, size, cost or warehouse location, etc. However, if you try to pack too much information into a SKU number, it can become long, confusing, and create a greater risk of data entry errors or packing and shipping errors.

Keep SKUs under 12 characters. Instead of using long SKU numbers packed with product details, it’s often better to save the majority of details for the product name and description.

On the other hand, a SKU number that’s too short can make it easy to confuse with a product quantity code. As a happy medium, Chief Operating Officer of Rakuten Super Logistics Michael Manzione recommends using eight alphanumeric characters for SKU numbers and keeping them short and simple enough that a fifth grader could read them.

Start SKU numbers with letters, which makes them easier to read. Don’t start with a zero or any other characters that could be misinterpreted by human readers or by computers. Use both letters and numbers rather than using only letters or only numbers. For readability, you can print SKU labels with one form readable by the human eye as well as a code that can be scanned for computers

Create SKU numbers unique to your company. Avoid using manufacturer model, serial, or SKU numbers as your own SKU numbers. Otherwise, your numbers could become out of sync in the event that you resell products from a manufacturer who changes codes or you switch to a different manufacturing source.

As a recap, let’s look at the best practices for developing your own SKU codes:

• Keep codes around 8-12 characters
• Use a combination of letters and numbers
• Start codes with a letter for better readability
• Avoid using manufacturer SKUs
• Don’t use a SKU if you run a small business with few inventory options

Understanding and using UPC codes

UPC barcodes were introduced in 1974 to help retailers track trade items. UPCs are numeric codes with 12 digits. When you go through a grocery checkout line, the barcode you see the clerk scan is a UPC code.

UPC codes are administered and managed by GS1 US, the American branch of an international organization GS1 (formerly called the Uniform Code Council). Once a UPC code gets assigned to a product, it remains constant for that product throughout the product’s shelf life. A product retains the same UPC code even if it’s sold by multiple retailers, making this 12-digit number the retail products equivalent of a universal language. This means you can generally use a UPC to find a product online across numerous retailers, while a SKU will bring that product up only under the business using that specific SKU.

Take a brand of blueberries for example, every carton of those blueberries, regardless of the specific grocery store that sells them, will have the same 12-digit UPC code.

You only need a UPC code for items that are being sold through retail supply chains.

If you’re selling products internationally, for some countries, you may need to use a special 13-digit version of a UPC called an International Article Number (IAN) or European Article Number (EAN). If you’re not sure which type of code is appropriate for a particular country, check with your retailer. Knowing which one to use is essential, as EAN codes and IAN codes won’t work in the US.

SKUs vs. UPCs: compare and contrast

SKU numbers are unique to individual retailers, whereas UPC barcodes are used universally and remain constant for a product no matter which retailer is selling it. For this reason, a product will retain one UPC code even if it’s assigned different SKU numbers by different companies.

Another difference between SKU numbers and UPC barcodes is that SKU codes are alphanumeric, while UPC barcodes are numeric. UPC barcodes must be 12 digits, while SKU numbers are whatever length the company assigning them decides.

SKU numbers are created by the companies that use them internally, while UPC barcodes are administered by GS1. Companies can freely create their own SKU numbers, whereas UPC barcode numbers must be purchased and licensed.

To make using SKUs and UPCs easier and more efficient, business software app providers are designing ways to integrate SKU and UPC scanning with digital inventory tracking, point of sale, order fulfillment, and accounting software. For instance, QuickBooks Enterprise includes an Advanced Inventory module that integrates barcode information with QuickBooks, enabling companies to save time by simultaneously updating inventory and accounting data.

Which one should you use?

UPC codes might sound like the most appealing, as they’re universal and they come on the product. Despite this, there are situations where a SKU could be more beneficial for your business.

First, a SKU can be tailored to your business. This means your SKU can come up in Google search results as well because it will be tied to your product online. This makes it a handy marketing tool.

Next, a SKU allows you to have even more customizable tracking of products in your store. If you have numerous versions of a product floating around, this is essential. A unique, easy to identify SKU for each one can make inventory easier to scan.

Lastly, SKUs make it easier and quicker to ring people up at checkout. A SKU is generally shorter and easier to memorize for employees. This means they can quickly punch in the SKU at checkout and take care of customers even faster.

Whatever solution you use for reliable inventory management, be sure you know the basic differences between UPCs and SKUs, and follow the best practices for each.

Know your labels

Once you know the specifics, SKUs and UPCs are pretty tough to mix up. When in doubt, remember: one is printed on a barcode on the package, the other is generally labeled “SKU” and on the store-specific tag or sticker.

You will rarely ever be in a situation where you have to update a UPC, but you will have to change SKU stickers during inventory or when sales change. Remember the aforementioned tips, and you will have your inventory on lockdown in no time.